Tangible Physical Substance Intangible No Physical Substance Will not be used up within the next year Actively Used in Operations Often called “operational assets” Definition and Classification of Long-Lived Assets

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Acquisition cost includes: 1) the purchase price 2) all expenditures needed to prepare the asset for its intended use. Acquisition cost does not include financing charges such as interest expense on debt incurred to purchase a long-term asset that is already constructed. Acquisition of Tangible Assets

Obj10 Asset cost includes: All materials and labor traceable to the construction. A reasonable amount of overhead. Interest on debt incurred during the construction. Self- Constructed Tangible Assets

Basket Purchase – when two or more long-term tangible assets are purchased for one lump sum. The total cost of the basket purchase is allocated to the individual assets in proportion to their relative market values . Acquisition Cost Basket Purchase

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On August 1, Hokie Corp. purchased land and a building for $500,000 cash. The appraised values are building, $400,000, and land, $200,000. How much of the $500,000 purchase price will be charged to the building and land accounts? Example: Acquisition Cost Basket Purchase